Should I buy or lease my next car?

If you're not sure whether buying or leasing is the best option for you, read on...

As the popularity of car leasing continues to grow within the UK, many consumers are feeling confused about which is the best option for them.

Unfortunately, there’s no simple answer. Generally speaking, if you like keeping up with the latest model, leasing may be your best option. Whereas if you want to own your vehicle and keep it for a longer period, buying is probably more suited to you.

That said, it really does depend on your own personal circumstances and priorities. So to help you work out which is the best option for you, we’ve put together a quick and easy guide to the pros and the cons of each.

First things first - what is leasing?

Contract Hire is the industry term for leasing.

The leasing company buys the vehicle and leases it to you for a fixed period at a fixed rate, with an agreed annual mileage allowance. At the end of the lease period the car is collected.

You can add a maintenance package to cover servicing, maintenance, tyres and breakdowns. And, generally speaking, the road fund tax is already included in the fixed monthly cost of your lease.

The big selling point for leasing, is that the company takes the risk on the resale of the vehicle, meaning you don’t have to worry about selling the vehicle and the impact of depreciation.

Pros and cons

Buying

Leasing

Insurance

Assuming no claims are made, the cost for insuring will reduce as the resale value of the car drops.

Most lenders will insist that you get fully comp insurance rather than having the choice to get a cheaper, less protective policy. Having said that, getting fully comprehensive cover on a new car, whether leased or bought, may well be the safer option.

Depreciation

Experts estimate that a new car may lose up to 40% of its value the moment you drive it away from the forecourt, and up to 60% after 3 years.

Not something you need to worry about as the leasing company takes the risk on the resale value.

Payment options

May be more difficult to get credit, especially if you already have a significant amount of outstanding finance.

Payments can be higher because you’ll own the car at the end of the agreement.

Regular payments are often cheaper as you are only funding the difference between the purchase price and the resale value. Leasing companies have strong terms with all of the manufacturers and you can generally benefit from their buying power.

Usually slightly easier to get credit, as it’s secured against the vehicle, meaning a lower level of risk for the lender.

Initial outlay

Down payment can cost more than that of a leasing deal.

If you already own a car, it can be often be used towards your deposit which helps reduce the cost.

Usually just between 3 and 6 times the monthly payment amount – generally lower than if you’re buying outright.

An initial payment is usually required each time you end an agreement and start another, meaning this initial outlay is a recurring one.

Maintenance and repair costs

Free to use whoever you like when it comes to maintenance and repairs.

Costs will go up over time as the car gets older.

Often restrictions on where you can get maintenance and repair work carried out.

You are able to choose a maintenance package included in your lease that covers you from having to pay for any additional work or services.

Additional costs

Don’t have to worry too much about the general wear and tear or how many miles you’re covering – just be careful if you want to make a bit of money from the resale.

Lease deals often come with restrictions on mileage, and charges for additional can be considerable, so always try to be as accurate as possible when choosing your annual excess mileage bills at the end of the contract.

Hitachi Hints and Tips is intended to be informative and interesting. It does not constitute financial advice, and you should always do further research when making any financial decisions. All information was correct at date of publication.

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